Final answer:
To make an informed investment decision, Logan Morgan should assess both the expected rate of return and risk. A high expected return often comes with high risk which may not align with individual risk tolerance. Calculating expected values and understanding personal preferences for risk are integral to choosing the right investment portfolio.
Step-by-step explanation:
When considering which investment portfolio to choose, Logan Morgan should compare both the expected rate of return and the associated risk. The expected rate of return is an average of what the investment is projected to yield, including interest payments, capital gains, or profit increase, typically expressed as a percentage. It is important for Logan to understand that the risk refers to the uncertainty associated with the returns, where a high-risk investment could lead to returns significantly above or below the expected rate. Risk can come from various sources, like default risk and interest rate risk.
To find the best investment, Logan should calculate the expected value, determine which investment is the safest based on the lowest standard deviation, consider which has the highest potential returns, and then see which aligns best with his risk tolerance. As Section 6 provides a formula for calculating returns over time, Logan can apply this to gauge his potential investment gains. Despite possible high returns, high risk might not be suitable if the volatility and potential for loss don't align with Logan's investment goals. Therefore, an examination of both the risk and return, and the assessment of his personal preferences for risk tolerance, are crucial in making an informed decision.